OPINION: While the Covid-19 pandemic enforced an effective two-year hiatus on many field developments, the subsequent escalating costs of materials, equipment and labour, coupled with supply chain constraints and the tight rig market are taking their toll as the economics no longer stack up for some projects.
Malaysia’s national energy giant Petronas last week confirmed that the plug had been pulled on its ultra-deepwater Limbayong oilfield development offshore Sabah, East Malaysia, which had simply become commercially unviable as the originally proposed standalone project centred on a floating production, storage and offloading vessel.
Upstream subsidiary Petronas Carigali had already expanded the Limbayong project scope to include the Bestari satellite as a tie-back, but the company still could not make the figures work.
The return to the drawing board on Limbayong came out of the blue — not least for the floater contractors that had taken part in one or more of the three previous FPSO tenders.
Petronas Carigali two years ago awarded TechnipFMC the front-end engineering design and integrated engineering, procurement, construction, installation and commissioning contract for the Limbayong subsea production system — a potentially lucrative contract, the future of which now hangs in the balance.
It is not uncommon for operators to re-evaluate field development concepts, particularly when the cyclical oil price has come off yet another high, and there are instances where companies have been unable to make a project fly in a $100 per barrel environment only to find a different solution that makes it viable at a crude price of just $50.
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However, it remains to be seen whether the prevailing materials and equipment costs and supply chain constraints continue and, in doing so, lead to other planned field developments being delayed or derailed.
Limbayong, which was discovered more than 20 years ago, could yet be exploited — perhaps as a tie-back to an existing producing asset — but in the shorter term Malaysia will have to forgo the field’s expected peak production of almost 40,000 barrels per day of oil.
(This is an Upstream opinion article.)